March 24, 2016 / 1:46 AM / in 3 years

China's Wanda Commercial says to stop building homes, offices in smaller cities

HONG KONG (Reuters) - China’s biggest commercial property developer, Dalian Wanda Commercial Properties Co Ltd (3699.HK), on Thursday said it would scale back investment and construction in small cities due to oversupply.

The logo of the Dalian Wanda Commercial Properties is seen at a news conference in Hong Kong March 31, 2015. REUTERS/Tyrone Siu

The property arm of Dalian Wanda Group, owned by China’s richest man, Wang Jianlin, said it would stop land purchases for home and office developments in these cities while continuing to build hotels and shopping malls.

Until now Wanda Commercial has banked on large plots of land in smaller cities, but inventories are currently bloated in such centers while Chinese home prices rose at their fastest clip in almost two years in February thanks to demand in big cities.

“In third- and fourth-tier cities, despite some improvement under government stimulus policies, the real estate market is still facing heavy destocking pressure,” Wanda Commercial President Qi Jie told an earnings conference.

The developer said on Wednesday its core profit rose 14.8 percent to 17 billion yuan ($2.61 billion) in 2015, the first full year of its shift to an “asset-light” strategy that seeks outside investment to finance shopping plazas.

On Thursday it said 57 percent of its contract sales came from major cities last year, up from 52 percent in 2014.

The developer expected a 39 percent decline in sales in 2016 to 100 billion yuan, as it focuses more on rental and property management income.

Wanda said it will open at least 50 new Wanda Plazas in 2016, adding to a total of 133 at the end of 2015.

Wanda Commercial adopted the asset-light strategy over a year ago to seek funds for Wanda Plazas as revenue growth in the real estate sector slows.

Wanda’s impairment provision of inventories surged over 17 times last year to 1.1 billion yuan, which company director Liu Chaohui attributed partly to the price decline in China’s smaller cities.

Shares of Wanda gained 2.3 percent on Thursday, outperforming a 1.2 percent decline in the broader market .HSI.

Editing by Stephen Coates

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